IC Markets – Europe Fundamental Forecast | 22 May 2026
What happened in the Asia session?
Asian stocks rose for a second day, fueled by optimism over U.S.-Iran peace talks, while the U.S. dollar held near six-week highs amid elevated Treasury yields and hawkish Federal Reserve repricing that weighed heavily on regional Asian currencies. Japan’s yen was particularly impacted after April’s core inflation dropped to 1.4% YoY (below the 1.7% forecast), signaling a slower Bank of Japan rate normalization path and keeping the yen under pressure alongside other regional FX like the Australian dollar, Indian rupee, and Indonesian rupiah.
What does it mean for the Europe & US sessions?
Traders entering the European and U.S. sessions should prioritize any high‑impact macro prints (PMIs, payrolls/claims, inflation or durable goods), central‑bank commentary, major earnings or guidance, and breaking oil/geopolitical headlines, because these items most rapidly change rate expectations, dollar direction, and risk sentiment; monitor opening-range technical levels, Treasury yields, and FX liquidity for short‑term trade signals, and treat unexpected inflation or hawkish central‑bank language as the strongest catalyst for dollar strength and equity pain while dovish surprises typically lift risk assets and depress yields.
The Dollar Index (DXY)
Key news events today
Revised UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from DXY today?
The U.S. currency is holding near a stronger level, helped by safe-haven flows, elevated yields, and the view that U.S. economic resilience gives the Fed room to stay restrictive if needed. At the same time, the bigger 2026 debate is still unresolved, because some forecasts see the dollar eventually weakening if U.S. rate expectations ease and global growth improves.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) is widely expected to hold the federal funds rate target range steady at 3.50%–3.75% at its April 28–29, 2026, meeting, as oil prices remain elevated around $108 per barrel for Brent crude amid ongoing US-Israel tensions with Iran, alongside surging inflation from energy shocks, further delaying any 2026 rate cuts potentially beyond September.
- The Committee continues to pursue maximum employment and 2% inflation goals, with the labor market showing mixed signals as nonfarm payrolls rose by 178,000 in March 2026—beating lowered expectations but driven partly by strike reversals—and the unemployment rate edged down to 4.3% from 4.4% in February.
- Officials face heightened risks from geopolitical tensions, soaring oil prices, and accelerating inflation, with CPI jumping to 3.3% year-over-year in March 2026 from 2.4% in February due to a 10.9% monthly energy surge, headline PCE pressured higher, and core PCE estimates around 3.1% or more.
- Economic activity continues to cool after robust Q4 2025 growth near 5%, with the Atlanta Fed GDPNow estimating Q1 2026 growth at 1.3% amid softer consumer spending, strike impacts, and labor data despite some resilience.
- March 2026’s Summary of Economic Projections forecasts 2026 unemployment at a median around 4.4%, GDP growth revised higher, and core PCE up to 2.7%, with the dot plot still signaling one cut in 2026 to a median 3.25%–3.50% funds rate amid softer labor but inflation upticks.
- The Committee maintains its data-dependent stance amid a mixed labor market, inflation well above target from oil shocks, and geopolitical risks, likely holding rates at 3.50%-3.75% with persistent divisions and hawkish tones on cuts.
- The FOMC continues its adjusted quantitative tightening, with Treasury rolloff caps at $5 billion per month and agency MBS at $35 billion per month to manage reserves amid post-2025 balance sheet adjustments.
- The FOMC continues its adjusted quantitative tightening, with Treasury rolloff caps at $5 billion per month and agency MBS at $35 billion per month to ensure ample reserves post-2025 program adjustments.
- The next meeting is scheduled for 16 to 17 June 2026.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Revised UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from Gold today?
Gold is still trading near elevated levels, but the latest headlines show it slightly softer, with price tracking around 4,531.71 USD per ounce and down 0.25% on the day. Recent coverage points to a mix of forces: easing geopolitical tensions have reduced some safe-haven demand, while lower crude oil prices, softer Treasury yields, and ongoing ETF support are helping limit the downside.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
No major news event
What can we expect from EUR today?
The euro is trading slightly lower versus the U.S. dollar around the 1.16 handle, having edged down 0.02% on Thursday as the currency consolidates after a stronger 2025 performance. The ECB’s insistence on a cautious, data‑dependent stance keeping rates on hold while acknowledging near‑target inflation and resilient growth is keeping downside constrained, even as month‑end flows and the Eurogroup meeting add a touch of risk‑off mood.
Central Bank Notes:
- The Governing Council of the ECB is expected to keep the three key interest rates unchanged at its 28–29 May 2026 meeting, with the main refinancing rate near 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%.
- Headline HICP inflation is likely to remain in the 2.0–2.3% range in the early months of 2026, with the March 2026 ECB staff baseline projecting an average of 2.6% for 2026, 2.0% for 2027, and 2.1% for 2028.
- The updated Eurosystem staff projections for 2026 paint a picture of persistent inflation overshoot, with headline inflation averages of around 2.6% in 2026, 2.0% in 2027, and 2.1% in 2028, compared with about 1.9–2.1% earlier outlooks.
- Real GDP growth is projected at about 0.9% in 2026, 1.3% in 2027, and 1.4% in 2028, implying around 0.2–0.3% quarter‑on‑quarter expansion in Q2 2026, consistent with the resilience observed at the end of 2025.
- The euro area unemployment rate is expected to stay near 6.4%, with strong labour‑force participation and modest wage pressures underpinning consumption resilience.
- The Governing Council continues to stress a meeting‑by‑meeting, data‑dependent approach, focusing on the path of inflation, the functioning of monetary‑policy transmission, and the impact of external shocks (geopolitical, energy, and trade‑policy related).
- Balance‑sheet normalization proceeds smoothly, with the APP and PEPP wind‑downs completed and the remaining stock of longer‑dated assets being allowed to run off without significant liquidity shortages.
The next meeting is on 10 to 11 June 2026
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news event
What can we expect from CHF today?
The Swiss franc is still being driven mainly by safe-haven demand today, with the currency holding firm amid global uncertainty and investors continuing to favor CHF on risk-off flows. Recent market coverage also points to the franc staying structurally strong in 2026, while the Swiss National Bank appears to be keeping intervention limited and maintaining a cautious stance on policy.
Central Bank Notes:
- At its monetary policy assessment on 19 March 2026, the Swiss National Bank (SNB) is widely expected to leave the policy rate unchanged at 0%, continuing the extended pause since September 2025, as the Governing Board considers current settings adequate to keep inflation near the target without resorting to negative rates.
- Inflation data since December indicate persistent weakness, with headline CPI hovering around 0% year-on-year through early 2026 and core measures subdued at roughly 0.4%, underscoring limited price pressures and lingering, though contained, deflation risks.
- The SNB’s updated conditional inflation forecast shows minimal change from December, with averages of about 0.2% in 2025 (now complete), 0.3% in 2026, and 0.6% in 2027 under a steady 0% policy rate. However, recent flat CPI readings may slightly lower near-term expectations, preserving scope for further easing if needed.
- Global conditions remain challenging, marked by U.S. tariff escalations under President Trump, subdued external demand, and uncertainties in major export markets such as Europe and the U.S., prompting the SNB to exercise caution despite resilient Swiss domestic activity.
- Sentiment in manufacturing and export sectors stays soft amid franc appreciation and weaker foreign orders, squeezing margins. Yet, overall GDP growth is expected to be around 1.5% in 2026, with unemployment edging up modestly from historic lows.
- The SNB reaffirms its readiness to intervene via rate cuts or FX operations should deflationary pressures intensify, while emphasizing clear communication through detailed meeting minutes and coordination with global partners on currency matters.
The next meeting is on 18 June 2026.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
Retail Sales m/m (6:00 am GMT)
What can we expect from GBP today?
The pound is trading in a narrow range, broadly stable but slightly under pressure against the dollar as traders juggle soft‑ish UK growth signals, political uncertainty in London, and a relatively resilient US‑yield backdrop. Sterling has pared back this week’s early weakness and remains near the mid‑1.34 handle, with markets waiting for clearer cues on UK fiscal policy and the Bank of England’s next move to decide whether the pound reverts toward a more persistent downtrend or finds firmer footing later in the year.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) met on 29 April 2026, maintaining the Bank Rate at 3.75 per cent, with the decision details published on 30 April 2026 alongside the quarterly Monetary Policy Report. This hold follows the unanimous 9-0 vote at the prior 18 March 2026 meeting, amid persistent energy shocks from the Middle East conflict overriding earlier cut expectations. No specific vote split for April has been detailed yet, but consensus previews indicate a hold.
- Quantitative tightening (QT) continues unchanged at the 2025 pace for gilt holdings reductions, supporting balance-sheet normalization while monitoring liquidity and maintaining restrictiveness against ongoing shocks.
- Headline CPI inflation rose to 3.3% in March 2026 from energy and motor fuel surges due to Middle East tensions, expected to stay between 3% and 3.5% through the summer, well above the 2% target. The April Monetary Policy Report outlines scenarios in which inflation peaks above 3.5% by the end of 2026 in the baseline, then eases below 2% in three years, or reaches 6%+ in adverse cases requiring tighter policy.
- UK growth outlook weakens further into Q2-Q3 2026 amid energy-driven cost pressures, rising unemployment risks, and softening confidence, with prior pay growth cooling now vulnerable to business pass-throughs.
- Global risks from the Middle East conflict persist, fueling energy/commodity volatility and sterling/gilt fluctuations; MPC views direct impacts as containable if demand slackens to curb secondary inflation effects.
- Inflation risks remain upward-biased due to energy persistence, potential wage embedding, and shock duration uncertainty, balanced against downside from economic slack and labor market softening.
- The MPC maintains a data-dependent stance, with policy still restrictive; the April Report provides fuller shock analysis, but no easing is signaled, yet members monitor for 2% sustainability, with Governor Bailey emphasizing vigilance.
- The next meeting is on 18 June 2026.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
Core Retail Sales m/m (12:30 pm GMT)
Retail Sales m/m (12:30 pm GMT)
What can we expect from CAD today?
The Canadian dollar is edging slightly lower around 0.726–0.728 vs. the U.S. dollar, underpinned by a stiffer U.S. dollar, widening CAD–USD yield differentials, and a dovish Bank of Canada outlook following softer‑than‑expected April CPI that tempered rate‑hike expectations. Oil prices have also pulled back after recent geopolitical tensions eased, removing a key support for the commodity‑linked loonie and keeping USD/CAD near the 1.374–1.378 range as traders brace for upcoming domestic data and central‑bank signals later in the month.
Central Bank Notes:
- The Governing Council held the overnight rate target steady at 2.25% at its 28-29 April 2026 meeting, matching consensus expectations and prolonging the policy pause as inflation trends firmer toward target. The Bank highlighted lingering global headwinds from Middle East tensions and U.S. tariff escalations under Trump, but confirmed the stance continues fostering disinflation amid moderating energy volatility.
- U.S. trade frictions and geopolitical strains persist in dampening sentiment, yet Canadian manufacturing PMI strengthened further in expansion, driven by robust export orders tied to sustained energy demand. Goods exports, anchored by crude oil, maintained strength through March, countering subdued capex as businesses emphasize operational buffers over expansion.
- Economic growth extended into Q2 2026 at roughly 2.1% annualized, sustaining Q1’s momentum via resource shipments, public spending, and industrial recovery. March preliminary figures suggest resilient expansion, tempered slightly by seasonal factors and lingering supply disruptions.
- Services PMI rose deeper into expansion territory, with gains across tech, leisure, and professional services; consumer segments showed firmer footing from wage gains, despite elevated prices curbing non-essentials. The Bank views this breadth as signaling a balanced, sustainable upturn.
- National housing resales climbed modestly in March alongside stable prices, supported by steady rates and regional affordability pockets, as inventory accumulation in key markets avoids sharp imbalances. Policymakers expect gradual softening, underpinned by sound lending standards and consistent household dynamics.
- Headline CPI held near 2.0% year-over-year in March 2026 prints, within the target band, with core metrics like CPI-trim and median easing to around 2.5% on easing food, goods, and partial shelter relief. This bolsters confidence in inflation’s durable path to 2%.
- Officials affirmed 2.25% appropriately positions the economy for 2% inflation stability and orderly rebalancing, with cuts off the table absent growth or price setbacks. Focus shifts to Q2 momentum, core trends, and trade/geopolitical developments ahead of June.
- The next meeting is on 10 June 2026.
Next 24 Hours Bias
Strong Bearish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil markets rallied today amid renewed geopolitical fear that US-Iran negotiations may not produce a breakthrough, with Iran’s Supreme Leader’s comments on uranium and the Strait of Hormuz toll dispute clouding breakthrough prospects. While Iran acknowledged the US proposal narrowed gaps, no agreement exists yet, and supply disruptions from the conflict continue alongside expectations of a modest OPEC+ output increase in July, keeping global energy markets volatile amid inflation and economic growth concerns.
Next 24 Hours Bias
Medium Bullish
